Housing starts fall to second-lowest rate in 50 years

Building permits drop 8% to a 27-year low, government data show

WASHINGTON (MarketWatch) -- Construction of new homes dwindled to the second-lowest level in 50 years last month, as home builders sought to reduce the number of unsold inventories in an elusive quest to find the bottom of the historic housing collapse, according to government data Friday.

Housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991 and just 19,000 above the record low, the Commerce Department estimated.

Starts of single-family homes tumbled 12% to an annual rate of 544,000, the lowest since February 1982 and the fourth-lowest ever. Read the full government report.

Housing starts were also revised lower in July and August. Starts in August were revised to 872,000, down from 895,000.

The September estimates were much worse than the 3% decline to an annual rate of 870,000 that had been expected by economists surveyed by MarketWatch. See Economic Calendar.

Building permits, which are less volatile than the starts data, fell 8.3% to 786,000 last month, a 27-year low. Permits for single-family houses dropped 3.8% to 532,000, the lowest in 26 years.

Few economists expect to see a quick end to the housing recession.

"We expect housing starts to fall another 5% to 10% through the beginning of next year," wrote Michelle Meyer, an economist for Barclays Capital. "This will bring the level of housing starts to a new post-war record low."

Builders are frantically cutting back their production of new homes, trying to work off a mammoth glut of unsold properties. Record foreclosures on existing homes are complicating the builders' efforts to bring supply back down to meet sluggish demand.

"This is good news because what is sorely needed in the housing market is a decrease in supply, not an increase," wrote Tony Crescenzi, chief bond market strategist for Miller Tabak & Co., who said construction of housing is now well below the level of household formation.

The more builders cut production, the sooner the market can recover. Buyers are being discouraged by falling prices and by turmoil in the mortgage finance market that's made getting a loan more difficult.

A separate report issued Friday indicated there may be little inclination among many consumers to get back into homebuying.

The University of Michigan and Reuters said their index of consumer sentiment plunged to a reading of 57.5 in October from 70.3 in September, the largest one-month decline in the 30-year history of the survey. See full story.

Grim reading

Housing starts were off 31% in the past year and were down 64% from the peak in early 2006, the the Commerce Department's data showed.

In the past year, permits for single-family homes have dropped 39%, single-family starts have fallen 42%, and single-family completions have sunk 27%.

Starts of single-family houses dropped to the lowest level in at least 20 years in three of the four U.S. regions in September.

Completions of new homes surged nearly 12% in September to an annual rate of nearly 1.1 million. The number of homes under construction fell 2.7% to an annual rate of 918,000, far above the recent sales trend.

The mood of home builders' has rarely been worse. The National Association of Home Builders reported Thursday that its sentiment index fell to a record low in October, with respondents particularly gloomy about future sales. See full story.

The government cautions that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can't be sure whether starts increased or decreased.

In September, for instance, the standard error for starts was plus or minus 12%. Large revisions are common.

It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 932,000 on an annualized basis, down from 973,000 in the four months ending in August.

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